The Pharmerging Future

A DRAMATIC SHIFT IS UNDERWAY in terms of where the global pharmaceutical industry is turning for growth and profitability. The cause is all too familiar: While the so-called major markets—the US and Canada, Britain and Western Europe, and Japan—are expected to fuel 70 percent of global sales this year, their contribution to global growth is due to drop to a measly 16 percent. Eclipsing these once-dominant sales drivers are a group of seven emerging markets—Brazil, India, Turkey, Mexico, Russia, South Korea, and, of course, China. These new engines are forecast to generate a phenomenal 51 percent of 2009's global growth, albeit while adding only 11 percent to global sales (see "The Growth Gap,").

Call these the tier-1 emerging markets—or "pharmerging," for short. Meanwhile, tier-2, which includes 21 far-flung nations ranging from Venezuela to Vietnam, Chile to the Czech Republic, is on tap to deliver an impressive 22 percent of 2009's global growth and 6 percent of its global sales (see "Pharmerging Fast Followers,"). Though for a long time it's been only a minor industry concern, the rest of the world is now emerging as pharma's great bright hope; these 28 nations, in particular, are expected to carry industry growth and contribute mightily to profitability for the next decade.

So Far, So Pharmerging

However wildly they differ from one another in culture or politics, the seven pharmerging markets have in common more than just their above-average growth in the pharma sector. They also share disease profiles that are markedly different from that of the major pharma markets. Their public health programs are expanding, along with access to medicines for their populations. And the main focus of each market is on primary care and generics. Together with the tier-2 "early emerging" markets, the pharmerging sector accounts more than 3 billion people, or 45 percent of the planet. While much is made of their exploding middle-class population—and its potential buying power—in fact less than one tenth of these 3 billion can afford Western medicine. Still, that adds up to 300 million—a population close to that of the United States.

PHARMERGING FAST FOLLOWERS

The global pharmaceutical market, valued at $773 billion in 2008, is expected to reach $910 to $940 billion by 2013. By then the pharmerging markets will be worth a projected $155 to $185 billion. Global growth will stand at about 3 to 6 percent, and the huge shift in the proportions of growth from the mature to the pharmerging markets is almost certain to continue (see "Five-Year Forecast,").

Big Pharma, Big Wake-Up Call

While the pharmerging markets represent virtual virgin forests for healthcare sales, most global drug companies remain underexposed in these opportunity-rich markets, indicating that the contribution of revenues from these markets is much less than the potential of the markets. In part due to their colonial ties, European pharmas such as Britain's GlaxoSmithKline and France's Sanofi Aventis have an advantage over their US-based competitors, with an average exposure rate of about 8 percent vs. 5 percent, respectively (see "Positive Exposure,"). In 2008, GSK purchased the entire Egyptian product portfolio from Bristol-Myers Squibb and the company has already realized gains. Additionally, GSK acquired a 16 percent stake in the largest African generics company, Aspen, which will also assume marketing and distribution control of GSK products in South Africa. Meanwhile, Sanofi's recent purchase of Brazilian generics maker Medley and Mexican generics maker Kendrick has positioned the French firm as Latin America's leader in that sector.

A number of other drug companies have already scored notable successes in these markets. One of the earliest entrants was Swiss-based Nycomed, which entered the Russian market in 1993, and is now ranked number 11 among Russian pharmas. Additionally, much of the recent growth at Bayer came from China and Turkey. Yet reaping only single-digit percentages of annual sales from a sector that represents nearly half the global population is nothing to boast about. There's no doubt that the industry needs to pay much greater attention to the pharmerging markets than it currently does. The question is how.